By Harry Prabandham · Updated September 27, 2026
Equity Compensation
Section 83(i) Elections: Deferring Tax on Private-Company Stock
Section 83(i) lets eligible private-company employees defer income tax on stock from options or RSUs for up to five years; an IPO ends the deferral.
Section 83(i) Elections: Deferring Tax on Private-Company Stock
1 / 6
What is a Section 83(i) election?
- Section 83(i), added in 2017, lets eligible private-company employees defer federal income tax on stock received from options or RSUs.
- The deferral ends at the earliest of five years after vesting, the stock becoming transferable or publicly traded, becoming an excluded employee, or revoking the election.
- An IPO ends the deferral rather than creating it; the election is designed for stock that cannot yet be sold.
- Social Security and Medicare taxes are still due when the stock vests or the option is exercised.
Try Our Free Tools
Full Guide
What is a Section 83(i) election?
- Section 83(i), added in 2017, lets eligible private-company employees defer federal income tax on stock received from options or RSUs.
- The deferral ends at the earliest of five years after vesting, the stock becoming transferable or publicly traded, becoming an excluded employee, or revoking the election.
- An IPO ends the deferral rather than creating it; the election is designed for stock that cannot yet be sold.
- Social Security and Medicare taxes are still due when the stock vests or the option is exercised.
Who is eligible for Section 83(i)?
- The company must be private and have a written plan granting options or RSUs that year to at least 80% of U.S. employees, with the same rights.
- Excluded employees include current or former CEOs and CFOs and their relatives, 1% owners, and the four highest-paid officers within the past 10 years.
- A company stock buyback in the prior year can make the election unavailable, and employers can decline to offer it.
- In practice few companies meet these conditions, so the election is rarely available.
How does the election work?
- The election must be filed within 30 days after the stock first vests or becomes transferable, whichever is earlier, with a copy to the employer.
- The income amount is fixed at the stock's value when it vests or the option is exercised.
- The company must notify eligible employees of the right to elect and its tax consequences.
- When the deferral ends, the employer withholds income tax at the maximum federal rate, currently 37%.
How does 83(i) differ from regular RSU and option taxation?
- Without the election, RSUs are taxed as ordinary income at vesting and nonqualified options at exercise, even when shares cannot be sold.
- The election postpones that bill so employees are not forced to pay tax on shares with no market.
- Electing 83(i) on stock from an incentive stock option or ESPP causes it to lose that special tax treatment.
- It is unrelated to an 83(b) election, which accelerates taxation of restricted stock rather than deferring it.
What are the risks of making the election?
- Tax is locked at the vesting-date value; if the stock later falls, you still owe tax on the higher amount.
- A later loss on the shares is a capital loss, usable against ordinary income only up to $3,000 a year.
- An IPO or the shares becoming saleable to the employer ends the deferral, and an IPO lockup may block sales when the tax comes due.
- State conformity varies, so California treatment should be confirmed before electing.
Key takeaways
- Section 83(i) is a private-company deferral that ends at an IPO, after five years, or at other triggers.
- Eligibility is narrow and depends on company-wide grant practices, not only on the employee.
- Deferring trades a current tax bill for price risk on illiquid stock.
- The 30-day deadline is firm; confirm with a CPA before it passes, since Rubric Advisors does not prepare tax returns or provide legal advice.
Related Topics
Equity Compensation
Deciding How Much to Sell in a Tender Offer
A tender offer decision is about how much, not yes or no. Weigh concentration, near-term goals, after-tax proceeds, and a range of company outcomes.
Tax PlanningEquity Compensation Tax Strategy Checklist
ISOs, NSOs, RSUs, and ESPP shares are each taxed at different moments; knowing which you hold sets which tax planning choices you have.
Tax PlanningLeaving California With Stock Options or RSUs: What the State Still Taxes
California taxes equity pay earned while you worked there, even after you move, using a workday ratio. Later appreciation follows your new residence.